Dear Partners,

For the month of October, Caravel returned +4.15% compared to -0.03% for the benchmark (-0.92% for the S&P 500 & +0.85% for the SPTSX)¹. This brings year to date total net return to +11.53% for the fund and +19.70 % for the benchmark, respectively.

October was a solid month for the fund, our strongest since September 2021. The performance was again balanced, a theme we have been pleased with so far this year. Highlights included our long-short equity book (+1.9% gross), commodity strategies (+2.6% gross), arbitrage (+0.4% gross) and high yield (+0.4% gross). 

The equity long-short book’s gains were again driven primarily by two long positions, MDA and PNG. We have highlighted these positions in past letters, and they continue to perform well. MDA finished October +22.6% (YTD +84.9%) while PNG finished +13.6% (YTD +207.7%). These outsized gains underscore one of the best things about investing – the asymmetric return profile offered by going long big winners. For example, PNG investors have made more than twice as much this year as they would have lost if the company went bankrupt. Of course, in hindsight every fund manager must resist the urge to say the same thing: “I wish we had bought more.” The fact is we will never be perfect and managing position concentration allows us and our partners to sleep soundly. We’ll take prudence over greed even if it means retiring with a few less shekels. We have continued to rebalance these positions to crystallize profits while keeping exposure to future developments and their ultimate upside potential.

October was also a strong month for our commodity related equity positions, especially gold stocks (+1.4% gross). ARTG which we have also highlighted in the past finished +8.1% in October, but the rally was quite broad with the yellow metal finishing +4.2% and hitting all time highs. We took the opportunity to cut exposure and add some gold hedges as charts began to look extended and the US election loomed. As such, we have been largely spared from the pullback in gold and gold miners so far in November. We have begun to add back some exposure here to our core names including ARTG. 

Our outlook continues to be one of cautious optimism about the North American market where we focus our time and energy. We believe a change of Canadian leadership in 2025 is a foregone conclusion at this point, and that this leaves Canadian stocks in a very favorable position over a 1-3 year time horizon. This expectation, combined with a red sweep in the US, a significantly improved global inflation dynamic, and a resilient labour market suggest the current business cycle has some room to continue. Full valuations in certain (large) areas of the stock market, continued elevated geopolitical tensions, and the potential for a second wave of inflation remain the key risks we can see to sentiment. We continue to take profits and maintain hedges to protect against these risks. 

If you have any questions about our fund, strategies, or just want to catch up, we are available via phone or email to our partners at any time.

We thank you for your continued support,

Jack and Glen

Managing Partners, Caravel Capital

 _{Benchmark = 50/50 weighting of S&P 500 & SPTSX Composite Indices}